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The Deeply Flawed Conservative Case for a Carbon Tax

March 7, 2017
By Benjamin Zycher

“Conservatives” Endorse the Broken-Windows Fallacy, Reject Evidence and Rigor

From the Executive Summary:

"The Climate Leadership Council (CLC) last month proposed a gradually increasing carbon tax on greenhouse gas emissions, with the revenues to be distributed as “dividends” to all Americans. It proposes also border adjustment rebates and fees for exports and imports to and from foreign markets without equivalent tax policies, and a significant reduction in the existing regulations limiting greenhouse gas emissions, but with an overall reduction in emissions below those incorporated in the current regulatory regime.

Virtually all of the CLC assertions in support of its proposal are incorrect or implausible. The CLC provides no evidence that climate risks are “too big” and assumes that the proposed tax would provide “insurance” without examining the future climate effects of its proposal. The argument that an emissions tax is a more efficient method of reducing emissions relative to regulations is not correct. The dividend proposal is naive in that it ignores the coalition problem in Congress and the relative influence of concentrated and unconcentrated pressure groups. The border tax adjustment would be hugely complex given the international supply-chain system, leading to an increase in the attendant bureaucracy even if the regulatory bureaucracy is reduced in size.

Contrary to its assertions, the CLC proposal would increase the government allocation of resources and thus the size of government. And the premise that the proposal will strengthen the economy by engendering new investment in unconventional energy is a classic manifestation of the broken-windows fallacy: Because the proposal would increase energy costs with no environmental benefits, the economy in the aggregate would be smaller. The CLC misrepresents the findings of a Treasury Department study; after accounting for employment and wage effects, the bottom 70 percent of the income distribution are unlikely to find themselves better off.

The gradually rising tax eventually would yield declining revenue, and there is no easy option for preserving the dividend payments. And the CLC refutes its own claim of policy “predictability” by proposing that after five years a blue-ribbon panel could recommend an increase in the tax rate. The CLC proposal is deeply unserious."